EU Sees Faster Eurozone Recovery On Firming Domestic Demand

Eurozone economic recovery is set to gain momentum as domestic demand gradually improves, but unemployment is likely to remain high and inflation subdued, the European Commission said on Tuesday.

In its winter forecast, the executive arm of the EU raised the euro area growth forecast for this year to 1.2 percent from 1.1 percent predicted in November. The projection for 2015 was lifted to 1.8 percent from 1.7 percent.

The outlook is for a moderate step-up in economic growth, the commission said.

"The worst of the crisis may now be behind us, but this is not an invitation to be complacent, as the recovery is still modest," European Commissioner for Economic and Monetary Affairs Olli Rehn said.

"To make the recovery stronger and create more jobs, we need to stay the course of economic reform."

The commission expects subdued consumer-price inflation to prevail both in Eurozone and the EU this year. The euro area inflation projection for this year was cut to 1 percent from 1.5 percent. The forecast for 2015 was lowered to 1.3 percent from 1.4 percent.

The projections indicate Eurozone inflation is unlikely to return to the European Central Bank's goal of 'below, but close to 2 percent' in two years.

Though the unemployment rate projections for Eurozone were lowered slightly, the figure is set to remain high. The forecast for this year was cut to 12 percent from 12.2 percent seen in November. The outlook for 2015 was lowered to 11.7 percent from 11.8 percent.

The German economy, the biggest in the currency bloc, is expected to grow slightly faster than expected earlier, driven by domestic demand. The forecast for this year was raised to 1.8 percent from 1.7 percent and the projection for 2015 lifted to 2 percent from 1.9 percent.

France is set for a slow recovery, led by a timid pick up in private consumption, while high unemployment is likely to remain, the report said. The economy is expected to grow 1 percent this year, slightly faster than the 0.9 percent expansion forecast earlier. The prediction for 2015 was left unchanged at 1.7 percent.

The prospect of strong export growth saw Spain's growth forecast for this year being raised sharply to 1 percent from 0.5 percent. Growth projection for next year was kept at 1.7 percent. In Madrid today, Spanish Prime Minister Mariano Rajoy raised the growth forecast for this year to 1 percent from 0.7 percent.

In contrast, Italy had its forecast for this year cut slightly to 0.6 percent from 0.7 percent, while the prediction for 2015 was retained at 1.2 percent.

Cyprus is forecast to witness a GDP decline this year, down 4.8 percent, which is worse than the previous projection for a 3.9 percent fall. The economy is expected to exit recession next year with 0.9 percent expansion, slightly less than the 1.1 percent forecast earlier.

The new entrant to the currency bloc, Latvia, is expected to grow 4.2 percent this year and 4.3 percent in 2015. Slovenia is forecast to experience a 0.1 percent GDP decline this year and exit recession in 2015 with 1.3 percent growth.

The entire EU economy is forecast to grow 1.5 percent this year and 2 percent in 2015. That is slightly better than the November projection for 1.4 percent and 1.9 percent growth, respectively.

The U.K. is forecast to show robust growth of 2.5 percent this year, faster than the 2.2 percent predicted in November. The outlook for next year was retained at 2.4 percent.

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